Madras High Court
N.K. Mohnot vs Deputy Commissioner Of Income-Tax And ... on 4 March, 1995
Equivalent citations: [1995]215ITR275(MAD)
Author: R. Jayasimha Babu
Bench: R. Jayasimha Babu
JUDGMENT Jayasimha Babu, J.
1. The petitioner herein who is an income-tax practitioner and is also engaged in the business of financing through a Hindu undivided family of which he is the karta and through several partnership firms of which the Hindu undivided family is a partner has, in this writ petition, sought a writ of mandamus directing the respondents who are officers of the Income-tax Department, to return the documents and promissory notes described in the annexures to the petition. The documents set out in the schedule include share and debenture certificates, bank pass books, account books, files and ledgers, vouchers, cheque books and promissory notes. The value of the promissory notes, as averred in the affidavit of the respondents, is Rs. 72 lakhs.
2. All these documents and promissory notes were impounded/seized by the respondents when the respondents conducted a survey of the petitioner's business premises at No. 38, College Road, Madras, that survey having been commenced at 3.20 p.m. on July 26, 1994, and concluded at 5.00 a.m. on July 27, 1994. The statement on oath of the petitioner was recorded at the conclusion of the survey. While the survey was in progress, the respondents served on the petitioner a notice under section 131 of the Income-tax Act at 7.45 p.m. on July 26, 1994, calling upon the petitioner to produce the documents, return of which has been sought in this petition. Also on July 26, 1994, an order of attachment in Form No. ITC P.9 under rule 30 of the Second Schedule to the Income-tax Act, 1961, was served on the petitioner by the third respondent, Tax Recovery Officer, attaching the promissory notes and related papers connected therewith, belonging to the Hindu undivided family of which the petitioner is the karta, as also of certain firms in which the Hindu undivided family is a partner. That order of attachment sets out that the petitioner was in arrears of tax for which recovery certificates Nos. 35, 37 to 40 dated August 28, 1992, had been issued by the Tax Recovery Officer. In the counter-affidavits filed by the respondents it has been stated that the petitioner is due, by way of tax, a sum of about rupees one crore and that the family of the petitioner is due to the Department a sum of about rupees two and half crores as arrears of tax.
3. It is not in dispute that the survey of the petitioner's premises was commenced on the afternoon of July 26, 1994, and continued uninterruptedly till the early hours of July 27, 1994, and that during the survey the Deputy Commissioner of Income-tax (Central Range I), Asst. Commissioner of Income-tax (Central Circle I(II)) as also the Tax Recovery Officer-I (Central), Madras, were present, in addition the inspector who had been authorised to carry out the survey. The petitioner has impleaded in addition to the four officers by their designation, the Commissioner of Income-tax (Appeals) II, Madras, Sri A. Banerjee; as also by name the Deputy Commissioner of Income-tax, Sri H. S. Acharya. The petitioner has alleged that the survey was conducted mala fide at the instance of the fourth respondent Sri A. Banerjee at whose instance, it is alleged, the fifth respondent Sri Acharya, the then Deputy Commissioner of Income-tax, caused the survey to be conducted. The allegation so made by the petitioner has been denied by respondents Nos. 4 and 5 both of whom have filed detailed counter-affidavits rebutting the allegations made by the petitioner.
4. In support of the prayers made in this petition, three principal grounds have been urged by the petitioner's learned counsel, Mr. G. Rajagopalan. The first ground urged is that the entire survey is vitiated by mala fides and, therefore, all the proceedings connected therewith are illegal. The second ground urged is that the survey was conducted in a manner which is clearly contrary to the requirements of section 133A of the Act, the survey having continued beyond the office hours, till the early hours of the morning of the next day. The third ground urged is that the respondents have no authority to impound the documents in the course of the survey in view of the express prohibition contained in section 133A(4) of the Act.
5. The mala fides alleged against the respondents is that the fourth respondent, the Commissioner of Income-tax (Appeals), was prejudiced against the petitioner as was evident from the manner in which he dealt with the appeals filed by the petitioner's wife by writing a lengthy order over 50 pages and rejecting the appeal. According to the petitioner, while the fourth respondent was working as a senior Departmental Representative before the Income-tax Appellate Tribunal, he had made certain statements which were indicative of his prejudice against the petitioner. According to the petitioner, the fourth respondent had exploited his friendship with the fifth respondent, who was then a Deputy Commissioner of Income-tax, to have the survey conducted with a view to harass the petitioner. The fourth respondent as also the fifth respondent have filed affidavits denying these allegations of mala fides. The fifth respondent in his affidavit has stated that "I have reasons to believe that there is evidence to show and establish that the petitioner had defalcated huge amounts from the exchequer by filing false bank challans and tax deduction certificates in false names. The petitioner's residence as well as his business premises have been searched a number of times by the Income-tax Department, Central Bureau of Investigation, Directorate of Revenue Intelligence, Customs, etc. It is also learnt that proceedings taken against the petitioner on the basis of the charge sheets filed by the Central Bureau of Investigation are pending." He has further averred "with regard to the mala fides and bias behind the survey operation as contained in ground (a) in the affidavit filed in support of the above petition, it is respectfully submitted that they are wholly baseless and untrue to the knowledge of the petitioner and have been made only to cloud the issue and create prejudice before this honourable court against the Departmental officials. I further submit that I am not aware of what transpired between the petitioner and the Commissioner of Income-tax (Appeals), Madras, the fourth respondent above named. At any rate, I state that there was no instigation from the said fourth respondent for me to take the survey operation as alleged by the petitioner".
6. The fourth respondent in his counter affidavit has stated "I strongly object to the various reckless allegations that have been made against me without any basis or justification whatsoever and also deny every one of the said allegations and also categorically state that they are totally false and really untrue and do not have any basis at all, and have been made only for ulterior motives and for the purpose of prejudicing the minds of this court. I stoutly deny the allegation that I had or have any personal prejudice against the petitioner or any of the members of his family nor had I instigated the survey conducted in the petitioner's business premises".
7. In the counter-affidavit filed by the second respondent, Asst. Commissioner of Income-tax, who authorised the inspector to conduct the survey, he has stated, inter alia, "It may be relevant to point out that the petitioner is in arrears of tax to the extent of around Rs. 1 crore while his family members are in arrears of tax to the extent of around Rs. 2.5 crores and as there was no possibility of recovery of the said huge arrears of tax, proceedings had to be taken to ascertain and collect more details regarding the various assets as well as the bank deposits, rent receipts, documents relating to immovable properties, other investments, etc., relating to the petitioner and it was for this purpose that the survey under section 133A of the Act was carried out by the Assessing Officer".
8. It is thus clear that the allegation of mala fides made by the petitioner against the respondents has been categorically denied by the officers who initiated and authorised the survey and were present when the survey was conducted. Moreover, the Commissioner of Income-tax (Appeals) is not an authority who is concerned with directing or authorising the survey and the officers who had carried out the survey, though lower in rank, are not the immediate subordinate officers under the fourth respondent. Any ill feeling between the fourth respondent and the petitioner, even if it be true, cannot be regarded as the cause for the survey. The respondents have stated that the petitioner was in default of a large sum as arrears of tax and it was necessary to carry out the survey with a view to ascertain the nature of the assets held by or under the control of the petitioner. Having regard to these facts, the allegation of the petitioner that the survey is vitiated by mala fides has to be rejected. The allegation, as rightly contended by the respondents, in the circumstances, has been made only to malign the Department, with which the petitioner appears to have had a strained relationship not only as regards his position as an assessee under the Act but also in relation to his profession as an income-tax practitioner. It has been averred in the counter affidavits that the Commissioner of Income-tax is the complainant, such complaint having been made as far back as 1989 against the petitioner and others in which the petitioner is charged with having entered into a conspiracy to obtain refunds from the Income-tax Department on the basis of fabricated vouchers. Such vouchers are alleged to have been prepared in collusion with the employees of the Madras Race Club. The petitioner had unsuccessfully attempted to have those criminal proceedings quashed. Admittedly, those criminal proceedings against the petitioner and others are still pending in the court of the Metropolitan Magistrate at Egmore.
9. In order to appreciate the petitioner's contention regarding the survey not having been carried out in accordance with section 133A of the income-tax Act, it is necessary to set out that section. Section 133A reads as follows :
"133A. Power of survey. - (1) Notwithstanding anything contained in any other provision of this Act, an income-tax authority may enter -
(a) any place within the limits of the area assigned to him, or
(b) any place occupied by any person in respect of whom he exercises jurisdiction, at which a business or profession is carried on, whether such place be the principal place or not of such business or profession, and require any proprietor, employee or any other person, who may at that time and place be attending in any manner to, or helping in, the carrying on of such business or profession -
(i) to afford him the necessary facility to inspect such books of account or other documents as he may require and which may be available at such place,
(ii) to afford him the necessary facility to check or verify the cash, stock or other valuable article or thing which may be found therein, and
(iii) to furnish such information as be may require as to any matter which may be useful for, or relevant to, any proceeding under this Act.
Explanation. - For the purposes of this sub-section, a place where a business or profession is carried on shall also include any other place, whether any business or profession is carried on therein or not, in which the person carrying on the business or profession states that any of his books of account or other documents or any part of his cash or stock or other valuable article or thing relating to his business or profession are or is kept.
(2) An income-tax authority may enter any place of business or profession referred to in sub-section (1) only during the hours at which such place is open for the conduct of business or profession and, in the case of any other place, only after sunrise and before sunset.
(3) An income-tax authority acting under this section may, -
(i) if he so deems necessary, place marks of identification on the books of account or other documents inspected by him and make or cause to be made extracts or copies therefrom,
(ii) make an inventory of any cash, stock or other valuable article or thing checked or verified by him,
(iii) record the statement of any person which may be useful for, or relevant to, any proceeding under this Act.
(4) An income-tax authority acting under this section shall, on no account, remove or cause to be removed from the place wherein he has entered, any books of account or other documents or any cash, stock or other valuable article or thing.
(5) Where, having regard to the nature and scale of expenditure incurred by an assessee, in connection with any function, ceremony or event, the income-tax authority is of the opinion that it is necessary or expedient so to do, he may, at any time after such function, ceremony or event, require the assessee by whom such expenditure has been incurred or any person who, in the opinion of the income-tax authority, is likely to possess information as respects the expenditure incurred, to furnish such information as he may require as to any matter which may be useful for, or relevant to, any proceeding under this Act and may have the statements of the assessee or any other person recorded and any statement so recorded may thereafter be used in evidence in any proceeding under this Act.
(6) If a person under this section is required to afford facility to the income-tax authority to inspect books of account or other documents or to check or verify any cash, stock, or other valuable article or thing or to furnish any information or to have his statement recorded either refuses or evades to do so, the income-tax authority shall have all the powers under sub-section (1) of section 131 for enforcing compliance with the requirement made.
Explanation. - In this section, -
(a) 'income-tax authority' means a Deputy Commissioner, an Assistant Director or an Income-tax Officer and for the purposes of clause (i) of sub-section (1), clause (i) of sub-section (3) and sub-section (5), includes an Inspector of Income-tax, if so authorised by any such authority;
(b) 'proceeding' means any proceeding under this Act in respect of any year which may be pending on the date on which the powers under this section are exercised or which may have been completed on or before such date and includes also all proceedings under this Act which may be commenced after such date in respect of any year."
10. This section empowers the income-tax authority to enter only a place at which a business or profession is carried on by the assessee; he cannot enter the residential premises of the assessee or the premises of the lawyer or chartered accountant of the assessee.
11. While making a survey under this section, the Income-tax authority has no jurisdiction to seize or impound any books of account or documents. The authority may be compelled to return books and documents illegally seized under this section, but he cannot be prevented from taking any appropriate proceedings on the basis of the information gathered from them. This section is part of a group of sections 131 to 136 which set out the powers of the income-tax authorities and which provisions occur in Chapter XIII of the Act. Section 131 deals with the power regarding discovery, production of evidence, etc. Section 132 deals with search and seizure, section 132A deals with power to requisition books of account, etc., section 132B deals with application of retained assets. Section 133 deals with power to call for information. Section 133A deals with power of survey. Section 133B deals with power to collect certain information. Section 134 deals with power to inspect registers of companies. Section 135 deals with power of the Director-General or Director, the Chief Commissioner or the Commissioner and the Deputy Commissioner. By section 136, it is declared that proceedings before income-tax authorities are judicial proceedings.
12. Section 133A opens with a non obstante clause. The income-tax authorities may exercise the powers conferred by this section notwithstanding anything contained in any of the other provisions of the Act. The power so conferred is also subject to certain limitations. The power of survey may be exercised only at a place where a business or profession is carried on and the authority may enter any such place of business or profession only during the hours at which such place is kept open for conducting the business or profession, and in the case of any other place, i.e., place where the business or profession is deemed to be carried on, only after sunrise and before sunset. After so entering the premises, the income-tax authority may require the proprietor, employee or other person attending to or helping in the carrying on of business or profession at that place to afford him necessary facility to inspect such documents as the authority may require and which may be available at the place; to check or verify cash, stock or other valuable article or thing which may be found therein; and to obtain from such person such information as may be required by the authority as to any matter which may be useful for, or relevant to, any proceeding under this Act. The authority acting under this section may place marks of identification on the books of account or other documents inspected and make or cause to be made extracts or copies therefrom; make an inventory of any cash, stock, other valuable article or thing checked or verified, and record the statement of any person which may be useful for, or relevant to, any proceeding under this Act.
13. If any person connected with the business or profession at the time of such survey refuses or evades to provide the required assistance or information to the authority, then the authority is entitled to exercise all the powers conferred by sub-section (1) of section 131 for enforcing compliance with the requirement made by the authority for the purpose of the survey. Such requirement can only be for the purpose of inspection of the books of account or any other document; checking or verifying any cash, stock or valuable article or thing; or furnishing of any information or recording of the statement of the persons connected with the business or profession and present at the time of survey. The wide powers so conferred on the income-tax authority for the purpose of carrying out the survey is subject to the limitation expressly spelt out in sub-section (4) of section 133A. The authority acting under this section shall "on no account" remove or cause to be removed from the place wherein he has entered, any books of account or other documents or any cash, stock or other valuable article or thing.
14. Learned counsel for the petitioner submitted that the power to conduct a survey can be exercised only during business hours and the continuance of the survey after the business hours is wholly impermissible under section 133A and, therefore, illegal. Though the submission so made appears plausible, such an interpretation of the provision would defeat the object of the provision and has to be rejected. The object of conducting a survey is to secure information. The section does not require prior notice of the survey being given to the affected person, in order to prevent the possibility of relevant materials whether it be accounts, documents, negotiable instruments or cash or other valuables, being removed from the place at which the business or profession is carried on. The section, therefore, advisedly provides that the authority may "enter" only during business hours. After such entry, no further limitation is imposed by the section regarding the period for which he may remain in that premises. If the volume of materials to be scrutinised is such as to require the survey being continued even after the business hours, the continued presence of the authority in that premises and the continuance of the survey cannot be regarded as "illegal".
15. Sub-section (2) of section 133A is not intended to enable persons to defeat the very object of the survey by providing them time within which to secrete or conceal the documents and valuables and thereby avoid liability for taxes and penalties, to which they may become subject when such material is discovered by the Department. After the authority enters the place of business or profession, the authority is entitled to continue the survey having due regard to the circumstances and the need for continuing such survey uninterruptedly. The hours during which the place of business or profession is kept open are relevant only for determining the time at which the authority may enter such premises or place. After having entered and commenced the survey, the survey may wherever its reasonably necessary to do so, continue till it is completed notwithstanding the fact that the survey would spill over beyond the business hours of the establishment.
16. Mr. S. V. Subramaniam, learned senior counsel for the respondents, submitted with regard to the last submission made by learned counsel for the petitioner, namely, that the income-tax authority, while conducting survey, has no power to remove the documents and other valuable articles from the place of business or profession at which survey is carried on, that by sub-section (6) of section 133A the income-tax authority conducting the survey has been conferred the powers set out in sub-section (1) of section 131, for enforcing compliance with the requirement made by the authority under section 133A(1) and, therefore, the authority is entitled to invoke sub-section (3) of section 131, and impound and retain in his custody the books of account and other documents produced before him in the course of the survey. It was also pointed out that the authority who impounded the documents has also obtained the approval of the Chief Commissioner of Income-tax for retaining the impounded documents in his custody till June 13, 1995, and that fact has also been communicated to the petitioner.
17. Sub-section (6) of section 133A does not authorise the income-tax Authority to impound any of the documents found in the course of survey. That sub-section incorporates within itself the provision of section 131(1) for the limited purpose of enforcing compliance with the requirement made by the authority with regard to the matters enumerated at (i), (ii) and (iii) of section 133A(1). It is for this limited purpose the powers conferred on the officers referred to in section 131(1), namely, the same powers, as are vested in a court under the Code of Civil Procedure while trying a suit in respect of (a) inspection and discovery, (b) enforcing the attendance of any person and examining him on oath, and (c) compelling the production of books of account and other documents, and (d) issuing of commissions, are also conferred on the income-tax authority while carrying out a survey, if the persons connected with the business or profession present at the time of survey, refuse or evade complying with the requisitions made in respect of the matters referred to in section 133A(1). The contents of section 131(1) are incorporated into section 133A(6) by reference. By such incorporation the other sub-sections of section 131 are not engrafted into section 133A(6). Parliament has taken particular care to avoid any reference to section 131(3) which empowers the authority before whom books and accounts are produced to impound the same, in view of the express and emphatic bar imposed by section 133A(4), against removal by the income-tax authority, of the books of account, documents, cash or other valuable article or thing found during the course of survey.
18. What is expressly prohibited by section 133A(4) cannot be circumvented and the prohibition nullified by resorting to sub-section (3) of section 131. The provisions of the Act have to be read harmoniously giving full effect to all the provisions. Had it been the intention of Parliament to permit impounding of documents, valuables and things found during the course of a survey, whenever, the persons connected with the business or profession carried on at that place refused to or evaded complying with the requirements of the authority conducting the survey, a proviso permitting such impounding in these circumstances would have been incorporated in sub-section (4) of section 133A. The prohibition contained in sub-section (4) of section 133A is absolute and unqualified.
19. The powers conferred on the authority constituted under the Act are to be exercised having due regard to the nature of the proceeding, and all the powers conferred by statute cannot be exercised in all proceedings under the Act. Though section 132 authorises search and seizure and section 131(3) enables the authorities to impound documents produced before them in any proceeding under the Act, those powers cannot be read into the power to carry out survey under section 133A. The object of survey is not the same as of search or seizure under section 132. The power of survey also does not include the power to impound documents as the object of the survey is only to ascertain the existence, nature and contents of documents and valuables kept at the place of survey and to obtain information from persons connected with the business or profession and present at the time of survey.
20. It is not in dispute that the survey of the petitioner's premises was conducted all through the night and up to 5.00 a.m. on July 27, 1994. The respondents have placed before the court the sworn statement of the petitioner signed by him at 5.00 a.m. on July 27, 1994. That statement is also signed by the Assistant Commissioner of Income-tax. As noticed earlier, notice under section 131 of the Act was served on the petitioner on July 26, 1994, at 7.45 p.m. while the survey was still in progress and the statement of the petitioner had not been recorded. It is not the case of the respondents that the petitioner at any time declined to make available the documents and records or that he did not afford the necessary facilities to check or verify the cash or stock or valuable articles found in the premises.
21. In the counter-affidavit filed by the Assistant Commissioner of Income-tax who is also the assessing Officer, he has justified the impounding of the documents by stating "Since the petitioner who was available throughout the survey operation did not give any satisfactory explanation regarding the Hindu undivided family assets, there was no course left to the Assessing Officer other than to invoke the provisions of section 131 of the Income-tax Act read with sub-section (6) of section 133A treating the spot as his camp office and impound the various incriminating documents and other books of account under section 131(3) of the Act." Thus, the impounding is sought to be justified by the respondents on the ground that under section 133A(6) the authority is entitled to invoke section 131(12) and after so invoking that provision exercise the powers under section 133(3) of the Act. This justification so sought to be given is fallacious and does not find support in section 133A of the Act. As noticed earlier, all that section 133A(6) provides is that the powers under sub-section (1) of section 131 may be exercised by the income-tax authority conducting survey for the limited purpose of enforcing compliance with the requirement made in accordance with that section.
22. Section 133A(6) does not empower the authority to proceed further and invoke sub-section (3) of section 131 on the ground that the power conferred under section 131(1) had been exercised. When the authority conducting survey exercises the powers conferred on it under sub-section (6) of section 133A which has incorporated within it the provisions of sub-section (1) of section 131, the powers so exercised are the powers exercisable in accordance with and for the limited purpose of section 133A and does not extend further.
23. The impounding of the documents found during the survey by the authority in exercise of the power under section 133 is, therefore, declared illegal, being violative of sub-section (4) of section 133A. The petitioner is entitled to the return of the documents so impounded.
24. The respondents, however, are entitled to make copies of the documents before returning the same even as it was within their powers to make copies and take extracts at the time of survey.
25. As regards the promissory notes that were seized during the survey, the seizure of the promissory notes stands on a different footing. These promissory notes being negotiable instruments had been attached by the Tax Recovery Officer by issuing an order of attachment under rule 30 of the Second Schedule to the Act, pursuant to a certificate for recovery of taxes due from the petitioner. The order of attachment so effected and seizure of the negotiable instruments pursuant to that order of attachment, cannot be interfered with in these proceedings. The respondents have stated in their counter that the petitioner has filed an appeal to the Commissioner of Income-tax (Appeals) against the recovery of the amounts covered by the promissory notes and that such recovery has been stayed in that appeal. It is open to the respondents to pursue other remedies that may be available to him with regard to these promissory notes.
26. Learned counsel for the petitioner invited my attention to the decision of the High Court at Allahabad in the case of United Chemical Agency v. R. K. Singh, ITO [1974] 97 ITR 14. The view taken therein also is that in the absence of any specific reference to sub-section (3) of section 131 in section 133A, the officers exercising the powers under section 133A are not empowered to impound documents during the course of a survey.
27. Counsel also referred to a decision of the Punjab and Haryana High Court in the case of Gheru Lal Bal Chand v. ITO [1982] 137 ITR 190, wherein it was held that the Income-tax Officer had no jurisdiction to resort to the powers under sub-sections (1) and (2) of section 131 while surveying the accounts of the assessees under section 133A when the assessees neither refused nor evaded to co-operate with the Income-tax Officer and whatever books or documents the Income-tax Officer required were made available to him.
28. In the result, this petition is partly allowed. All the documents removed at the conclusion of the survey by the respondents from the place of business or profession of the petitioner except the promissory notes which have been attached by the Tax Recovery Officer, shall be returned to the petitioner. The respondents are at liberty to make copies of the same before returning the documents. In the circumstances of the case, there will be no order as to costs.